Wednesday, January 23, 2008

What is the "Right" Amount to Donate to Charity?

Over the time I've been writing this blog, a number of commenters have taken me to task for not donating enough to charity. I'm not going to say they're wrong-- I look at the numbers myself and think I'd like them to be larger, because I've had a lot of advantages in life and it just seems like the right thing to do. One thing that is worth mentioning is that the budget and reported actuals for my charitable donations are what I consider my "personal" donations. What I don't budget for or include is the proceeds from this website, all of which is donated, and which I hope will be more than double my personal donations for 2008. But even with that included, is that "enough?"
Ultimately, for me the decision comes down to slicing up my budget into a number of things I am trying to prioritize. I think I live fairly frugally by New York standards, with the exception of certain areas where I spend rather more highly, for reasons of convenience (food) and pleasure (travel, and again food). The other thing I prioritize is saving for retirement. I expect to be solely responsible for taking care of myself in my old age-- I don't expect to have a partner or children who will do it. And as another commenter pointed out in my defense, other members of my family are not necessarily in as good financial shape as I am, and it's always in the back of my head that I may need to help them out.
If things go reasonably well and my long-term budgeting works out, I expect to have some money left over when I die. I'll give a little to my niece and nephew, but otherwise, that will be a time when I can give a significant amount of money to charity.
So the question comes down to my current lifestyle: how do I balance what I spend on my own enjoyments vs. benefiting other people? What luxuries do you allow yourself at the expense of charitable donations? How does that shift as your income increases? Is there a certain percentage of your income that should be donated? Who is more generous/stingy, a person who donates 1% of their $100,000 income, or the person who donates 10% of their $1 million income? How do you plan for making donations right away vs. in the future?

I've read a few articles about the philosopher Peter Singer, who, if I understand his ideas correctly, believes that all life has equal value, and that consequently we should all be vegetarians, and to take things to an extreme, that it's amoral for anyone to have luxuries while others are suffering. It's an interesting idea-- if you assume that each person who works as hard as they can, to the best of their ability, is equally deserving of rewards, how do we justify the different levels of luxury enjoyed by CEOs vs. teachers vs. people who work in factories in China? And are any of those people, all of whom have an income that can probably meet their basic needs, morally obligated to donate the rest of their money to better the lives of people for whom self-sufficiency isn't an option, and that only once all those people have been taken care of can anyone justify spending money on personal luxuries?
Obviously that is a rather deep and weighty and not realistic way of addressing the question of my own donations, and obviously I've made peace with the idea that I don't personally have to sacrifice all material pleasures until I've saved the world's population from suffering and hardship. But it's all food for thought. How do YOU decide what to donate to charity? Let's hear it...


Gretchen said...

The charities nearest and dearest to my heart (animal rescue) need my time as much, if not more, as they need my money. When figuring out your contributions, don't discount the value of volunteering.

SandyVoice said...

I have great respect for people who give a high percentage of their incomes to charity, but I can't do it. I budget $120 a year for monetary charitable donations. Sometimes I exceed that, but I don't plan for it. I expect that if I were making a lot more than I am, I would feel guilty about giving so little, but I don't have much extra, and I'd rather not become a recipient of charity myself. There are personal finance writers who tell you that giving charity will help you increase your wealth, but the starving kids in Africa seem far away. (Although I have made donations to them, in honor of friends who really don't want extra stuff on their birthdays.)

I agree with Gretchen. I give my time and talent to issues that are close to me. I'm a musician, so several times a year I participate in charity concerts. People who have more money than I pay to attend them, so ultimately I am the cause of more charity than I could ever afford to give.

Kathryn said...

I'm glad you're addressing this, because I'm another regular reader who's sort of been quietly appalled at how low your contributions have been. (I realize you give away your blog profits, but I guess I'm doubtful that really adds up to much -- and it seems odd that you don't disclose it when you disclose everything else.)

A slogan not too long ago suggested everyone should try to give 5% of their income or 5% of their time -- and I think that's a good place to start. It's really important to think about percentages, also. I think a lot of people start out giving a decent amount, but then never raise it when their salary goes up. This may explain why people at the low end of income give a much greater percentage of their income than people in the upper middle class -- or maybe it's just that they have a more pronounced sense of "there but for the grace of god".

I make about $150K, and last year gave about $13K to charities. I think that's probably on the high end for my income -- but I don't have kids and I spent an equivalent amount on vacations, so it's not like I'm counting coupons. (I think the point about charity begins at home, btw, is a good one -- I also am in a position of having more money than my family, and do help them out, but while I think that's a worthwhile effort, I don't include it in my charity calculations).

One of the easiest ways to give to charity is to use that basic good habit of personal finance -- and make it automatic. Most medium to big charities have programs where you can sign up for monthly automatic withdrawals (or credit card charges) -- and it adds up quickly without a lot of pain. I give $60 a month to MercyCorps (a great disaster relief org) this way, and don't even feel it. (It's less than my cable bill.)

But it doesn't have to be people in far away places -- I tell friends to just pick a charity that's meaningful to them and just give that extra $50 they have lying around. Then do it again. It's surprising how little you notice it and how much it makes a difference in people's lives.

Anonymous said...

Different strokes for different folks. I think Madame X is fine for giving so "little". She's only in her 30s, and she needs to be responsible for herself and her family first. While I applaud the nobility shown by some commenters, I think it's financially more efficient to have young people take care of themselves, thanks to the power of compound interest, and to have the old people who have acquired more than they need to provide the bulk of donations.

RacerX said...

Sorry, I don't get the weird "i am disappointed with your giving" thing.

Bill Gates is giving away $60 Billion-ish dollars, Warren Buffet the same. These are two guys who were vilified for not giving enough...

I think it is totally OK to build a nest egg and donate at death. I don't believe in handing down gobs of cash to those that won the gene pool prize either.

On the other side I don't say that those who are giving 20-30% of their pay are fools either.

Save being appalled for someone that runs a sweatshop, not someone that is a great example on how to live well, by spending less... (Steps down from soapbox)

Raven said...

I'm always leary about how much of my money actually makes it to those in need. So, I'm more generous with my time than with money; ie. I volunteer. I find volunteering takes more effor than just writing a cheque, and it's ultimately more rewarding.

I do contribute to some charities and organizations and even have a 'pan handler' budget (for buying the odd pan handler a hot meal or a coffee), but most of my charitable giving is in the form of time.

Anonymous said...

Great question Madame X. Although very few of us will have an authoritative answer for you. One might start by giving thought to religious and political leanings. For many, desiring to walk a Christian path, there is a 'starting point' of 10% of income. Those with the ability to give more because they have a salary higher than most or less responsibility should consider doing so IMHO. Some give with the heart, others use a little more logic in making sure their dollars are wisely used. On the political side, one might argue that part of your tax dollars is used for charitable purposes? Another way to look at it is that whatever you save can always be given to charity as the need arises.

happydally said...

I'm a teacher and I give 5% of my paycheck each month to but I specify that the money is put into an account for a student worker I met while living in Central America. I saw first hand the work his organization was doing for my students so I knew that it would be well used. As a teacher, 5% does not add up to much. I frequently think about other ways I might have invested that money. However, every few months I will receive the nicest letter or email from that volunteer and I remember why I do is like I'm vicariously living through his experiences that I can't have due to family responsibilities. I can't move back to Costa Rica to teach again (teaching there I only made 740 dollars a month), but I can still help the wonderful people there by donating funds to their program.

FranticWoman said...

Since I was a little girl, I've contributed 10% of my income to charity. This is what my parents do and what they taught me.

Even when I was v. broke I stuck with 10% - using a percentage made it easy to stick to - dollar amounts can be scary. Over my lifetime people/services have been generous with me so I've always felt it was my duty - and I dont mind doing it at all.

Regarding how I get "10%". In my youth when I had no taxes really, it was straight off the top, even if it was 50cents from my $5 allowance. As I started paying taxes I did it from my gross paycheck - which was v. little thru the college years since I was a waitress making $2.01/hr. I may sound cheap, but I honestly didnt think much about it either. I was stuck in the mental rut of "10%".

WIth fulltime work now, I cheat a little and don't do 10% of the gross. I do 10% of net after 401k savings, deductions and taxes. From my net in determining 10% I take it before I determine any other savings. I don't make that much money considering and live in a high tax state.

That being said, after fiddling with such numbers, I do do other contributions over the year as it suits me and I dont count that in the blanket 10% statement. For ex - I just donated my car; the charity rec'd $750. I dont think "I'm done for six months!" or whatever. That was an easy way to contribute but I stick to 10% regardless.

IMO, using a percentage is the way to go. I think you therefore can't second guess or doubt yourself about how much you are doing or not doing in your opinion.

Hope this helps. I've been doing this for over 25 years. If I win lotto though - mucho bucks are flying to the charities!

jeff said...

I'm with FranticWoman, I start with 10% and then go up from there, and often donate more then 15%. The 10% goes to my local church and then "extra" goes to faith based ministries, or others we support. I believe the universal law of sowing and reaping is very much alive and have seen the fruit of it many times over my short life. Personally as I gain freedom from debt and increase my income I plan on giving more. Another universal law also holds true, it is more blessed to give then to receive.

X you make an interesting argument for donating at the end of your life rather then through it, however I think that because of the two laws mentioned above life would be better over all with "small" donations though out life rather then one large one at the end.

Steward said...

For me, the most important question to ask in considering how much to give is "Why do I give?" I find that what I answer determines both the quantity of my giving and the quality of my giving. My wife and I really think that we give because (1) it is better than receiving, and (2) it is a really good expression of love for others. In other words, having the best life possible and being people who love like crazy is our motivation to give. As a result of this motivation we try to live a lifestyle that maximizes the amount that things that we give, whether it be our stuff, time, or money. Though percentages are useful tools in the pursuit of accountable giving, I think that sometimes they can act as an excuse for us not to push past our current level of giving - so we try to use them simply as a baseline amount, seeking to give beyond them when we are able. Why questions are generally really, really important.

Debbie M said...

I used to really worry about this, too. And I also see a wide variation of possible right amounts. The average amount given to charity in the US is 3.1%, so one could argue that anything above that is "good." But as you said, one could argue that keeping any luxuries at all when there are others with big troubles is "bad."

I have compromised on 10% of my net income. (I figure at least 10% of my taxes are already going to the less fortunate.) I picked that number because although it is significantly less than I could theoretically afford if I were a lot more frugal, it is also significantly more than the average and it is a nice round number and is commonly referenced by religious people.

I started donating zero when I had a very tight budget. Some time after I got a full-time permanent job I started donating 5%, and then I worked my way up as I got raises until I reached 10%.

In addition to that amount, I also contribute small amounts to nonprofits that benefit or have benefited me (public radio, public TV, state parks, the local nature center).

Anonymous said...

I once read an interesting comment about charitable giving. It was in the context of very wealthy and successful people but the gist of it was Bill Gates could give $100 now which to the charity would be worth anywhere between $100 (if used as cash right away) to up to +10%/year (if invested in stocks). However, if he instead held on to the $100, it would often be worth much more than 10%/year. In fact, one could argue the definition of successful businesspeople is the ability to earn higher than average rates of return.

While we are no Bill Gates, we are finding that putting dollars into various businesses and opportunities exceeds the S&P500. In our case, too, since we are not rich there is a selfish advantage to holding on to money with the intent of growing it and donating later in life or at the end of it. That is flexibility. If I give it away now, it is gone forever in the event of something major and unforseen (such as a long-term uninsured illness). Of course, some would say that the true definition of charity is giving without regard to oneself.

Anonymous said...

I'm with Racerx in regards to how others view your blog and how seriously they take what you say. If they knew that a majority of people didn't give to charity, they'd probably jump off a cliff. It's your money, spend it as you wish.

I give money to the SPCA as well as foster dogs in my home. If someone asks me about to donate to the lung cancer society or the heart association, and I'm feeling generous, I may give a few dollars. I also give to my university. A couple friends and I began a scholarship and we pick the recipient based on the criteria in which the scholarship was formed.
I also donate to Goodwill twice a year.
There is no set amount, but I give what I can, when I can.

Madame X said...

I've been reluctant to disclose ad revenue for fear of being booted by AdSense. I haven't put up a lot of ads, but I expect to get up to maybe around $1,500 this year. Not great, but it's something.

Michelle said...

My husband and I give 1-2% of our income to charity per year. It is a goal to give ~5% per year, but that's challenging because our household income is about 30K a year.
We're not particularly religious, but we think it is good for the soul to give charitably. I think one should clarify one's goals for charitable giving before setting a dollar or percent amount for charitable giving.

Sherry said...

This was a great post and addresses a tough question with no right answer. Charitable giving is a very personal choice.

My husband donates 10% of his income to charity. I do not. Instead, I donate my time by volunteering.

I think that donating money to charities is very admirable, but I also think it's intolerant to look down on those who choose not to. I think that you are already doing your part by leading a responsible life and helping others to do the same.

"Future Millionaire" said...

Charity is a personal choice so I don't fault Madam X, its her decision.

For my personal choice I second Fanatic Women. I give 10% and have since I was a child no matter what crappy job I was working trying to make ends meet. Ten-percent was instilled in me. As I continue to grow income wise I donate additionally for specific fund raising efforts. I also volunteer weekly with the organization that I primarily donate to (a Local Food Bank) so I see first hand the help that money provides.

For those of you worried about the percentage of money that sees those in need (IMHO in reality it does because it takes administration to get goods to those in need since there are not enough volunteers willing to help but that's off topic), you can always take the money you are donating and buy supplies to donate instead and that way you are ensured that a full 100% of what you donate sees those in need. I can't tell you how much a couple of bars of soap or a few boxes of cereal would mean to those that are truly hungry and needy.

Alli said...

I have lived as a volunteer in a developing country for two years. People here have been receiving hand outs for far too long. There is a sense of entitlement that is counterproductive. My experience here has taught me effective ways to donate.

Writing a check maybe the only thing you can do. Donating to organizations that require the community’s involvement, checks and balances for what is received, and provides training or similar assistance are the most effective. However donating your time and skills can be far more valuable. Learning and earning what you need is far more rewarding and sustainable. This is the same all over the world. When donating goods to a group or program make sure they are suitable. An example would be to check with a school librarian to see what would be the most valuable donation to a school in another country. Donating books or other goods that are damaged or inappropriate is not being charitable.

It is not the money that the people remember, but the ones that have influenced their lives. So sponsoring someone to take part in a volunteer or mission project you believe in can be very rewarding as well. Donating time and money is as much of a gift to yourself as it is to others.

It sounds quite juvenile to harass anyone about what they are donating. I could say the same for them. Have they given up months or years of their life in the name of helping others. Maybe so, but it isn't a valid argument and who cares anyway! You have to give what you are comfortable with, whether money or time. Don't worry about the others and enjoy giving as much as you want!

A quick note concerning Future Millionaire's post... The Second Harvest Food Bank back home has deals with several suppliers. For every $1 they spend they receive either $10 or $12 worth of goods. Sorry that I don't have the exact figures. It would be worth investigating it find if the same is true in your area.

Anonymous said...

I decide what to donate to charity based on what causes and issues are important to me. Face it, if you're reading comments on a blog, you have a better standard of living than a lot of people in the world.

I donate to a number of charities in my local area, as well as a few national ones. I also do a lot of volunteer work, which is how I've chosen several of the local charities that I donate to. Seeing their work in action compelled me to support them.

My personal philosophy is that if I'm able to afford a good standard of living, then I can gaze beyond my own navel and help others with both time and money.

Anonymous said...

I donate 10% to my local church, and have since a child. It's hard, but it helps me keep a disciplined budget.

It's no one's business what others donate. Frankly, the most important thing is to take care of yourself and your family first, so that you don't have to burden others.

Also, regarding living with luxuries...we would be fools if we had access to them and never took advantage of some of them. We should enjoy life and the pleasures it offers.

Shana said...

I agree with those that have said giving time and volunteering is a better way to go. I've also had concerns about how money was spent by charities, yet last year when a friend asked me to volunteer on a project for a non-profit he does some work for, I agreed and I enjoyed it greatly. Giving time is far more satisfying than writing a check. I helped to make a complex event happen, and I was (am) proud of that -- and I can tell you if I'd simply given them a check, I wouldn't have felt the same pride. I recoil at the idea of being obligated to give money simply because I live in a first-world economy and may earn more money in a month than someone in rural China earns in a year. To me, that reeks of guilt-based giving, and I don't go in for that at all. In fact, I rail against anyone who uses guilt as a motivation for *anything.* I don't know when the last time I gave money to an organization for a "needy" population, but I've given money (and last year, time) to other organizations. I think it's foul and ridiculous to criticize someone on how they choose to give money. People are different and have different priorities, and that needs to be accepted and not criticized by the way person B thinks person A should live.

Penny Nickel said...

Just personally (not judging other people) I feel bad when I put too much into my savings account without giving a significant amount away-- I feel like there's a lot of luck and privilege that enables me to earn $55K and save half of it, so who am I to just keep it all, you know?

As far as the numbers, I'm like franticwoman-- I aim for 10% of my net income. That's just based on starting with the traditional 10% of gross income, and adjusting down because it was a great idea but in practice right now feels like too much of a burden. So I set my goal at 10% of net (and usually actually end up around 8%, but I'm working on it!)

[And P.S.-- I don't necessarily agree with Peter Singer on this or other things-- but have you seen this NYTimes article from him? It doesn't talk about giving up all luxuries, but the top 10 percent of Americans giving 10%-35% of income:]

Anonymous said...

My two cents......Nobody should feel obligated to give anything. Your first responsibility is to yourself and your family.

Anonymous said...

I have a few points:

1) I don't think it's anyone's place to judge how another individual chooses to spend their money. If someone doesn't prioritize charity donations, or donates to the "wrong" charity, that's their business.... as long as their spending doesn't hurt anyone else, that is.

2) I don't think that we should underestimate the value of volunteerism. Not everyone is in a financial position to donate great amounts of money to charity - as a student, whose entire income comes from student loans and what little I can save from my summer job, I can't afford to give much money to charity. That said, I do give a lot of my time... and I think that volunteering can be even more rewarding than just writing a cheque to an organization. Volunteering allows people to gain first hand experience in whatever area they're passionate about, be it tutoring, visiting hospitals, or helping out in a food bank - I know that my volunteer experiences have made me a much more well-rounded person, and a better contributor to society.

3) That said, as someone who has worked in fundraising for a charity before, charities rely on those people who write the big cheques and don't do anything else. Charities and not for profits don't run on air - they need funding in order to maintain the activities that they do... some people criticize non-profit organizations for having excessively high overhead costs... but in order to run a successful charity, you need to hire good people.

Beany said...

Usually I donate to causes I agree with which tend to be organizations that advocate bicycling or a car-free lifestyle. I guess I like the underdogs in the non-profit world.

I used to donate to organizations that tended to have better marketing, but when I found out how much the executives of these organization were making, I was turned off. Why should I have to give my piddly $20 or $50 if the president of the organization is making 6 figures? I also dislike organizations that sell my info to other organizations. I dislike donating to organizations that spam me.

I used to volunteer a lot until I came face to face with the entitlement mentality so I've taken a break from volunteering.

I also try to give to organizations in my own backyard rather than someone half way across the country. To keep money in the community and so on.

English Major said...

In '07 I gave in the neighborhood of $1,300 to causes near and dear to my heart, mostly education-related (Donors Choose, the scholarship foundation for which I volunteer, my high school, etc.). My goal was to give 5% of my gross income, which I didn't hit, because there was one point during the summer when I really wanted to spend the money I'd earmarked for giving, and did. This year, I plan to give at about the same level: $100 a month. It's not an enormous amount, but I really do want to cultivate in myself the habit of charitable giving, so that ultimately I can work my way up to the idea of a "tithe"--a tenth of my income going to causes I believe in (not to a church as in the traditional sense of a tithe).

Peter Singer wrote a really interesting article in the Times magazine a few months back about models of billionaire philanthropy applied to everyone. I think it's the link that Penny Nickel posted above. It's a really interesting read.

I do think we all have community obligations, and I think they do to some extent require us to give of ourselves both financially and not-financially. If you're interested in increasing your giving, perhaps you could bump it up a little bit and also add some hours at a volunteer opportunity.

English Major said...

I'm always leary about how much of my money actually makes it to those in need.

Charities are required to report this to overseeing bodies. rates charities partially on the basis of the percentage of operating budget that actually makes it to services (hint: charities that throw big benefits regularly usually score lower--this includes a ton of cancer charities), and you can go there for all the numbers your heart desires.

Amy said...

My new Year's resolution last year was to give more to charity, goaded into it by the examples of various PF bloggers I had seen, giving way more than I was at that time. Right now, my goal is to just be "average," which someone above said is 3.1% of income. I'm not there yet, but it seems like a reasonable goal. Once I reach it, I'll try for a loftier goal.

Right now, my charities are focused on hunger relief in the US (America's Second Harvest) because of the recession rumblings. I think a lot of people will face hunger and turn to food pantries, and I want the resources to be there waiting. I also give food and cleaning supplies to the local food pantry (sporadically), volunteer with our town's park maintenance group, and work at events for the Medical Reserve Corps so my area is prepared for disasters. My library hosts a Volunteer fair every spring. I manned the park booth last year, and met lots of great people from other groups, and learned about great resources in the area.

Escape Brooklyn said...

Last year, I gave $195 to charity (less than 1% of my gross income) and spent $1,351 on gifts for friends and family (~2%). I want to give more to charity - ideally in the neighborhood of 5%+ - but for now I've prioritized paying down debt.

I work f/t for a nonprofit and have done substantial volunteer work, so I guess I feel as if that's my contribution in lieu of money. At least for now.

In my will, I have designated that charities will get more than 50% of my estate (the other half will go to my nephews). This assumes I outlive my parents; if not then my parents and my husband's parents will get everything.

As for charity rankings, there's been a good deal of controversy within the nonprofit community the past few years about sites like Charity Navigator. Some rankings penalize charities for not spending the majority of their donations on programs, yet administrative overhead is necessary to support said programs. Newer charities are at a disadvantage in these ratings compared with older, entrenched organizations, since newer charities have to spend more initially on administrative costs.

That being said, all nonprofits with income above $25k are required to complete 990s. These allow you to see a charity's revenue and expenses, and what their highest paid staff earns. You can view 990s online with a paid subscription to GuideStar, or view them for free at the Foundation Center's library. Viewing 990s may help reassure people who are worried about misuse of funds and can also help people compare different organizations.

Anonymous said...

I just read "The Soul of Money: Transforming Your Relationship with Money and Life" by Lynne Twist which speaks eloquently to this question. Twist writes not with a judgmental or prescriptive voice. Rather she writes about the healing and actualizing power of charitable work and donations. In fact, in Your Money or Your Life, Joe Dominguez and Vicki Robin conclude the same thing. Early in their book, they describe the "normal wealth curve" that reflects the impact money has on most middle-class Americans. The curve has four parts: Survival, the initial and very steep part of the curve where every dollar dramatically improves quality of life. Comfort, the second and still relatively steep part of the curve. Luxury, the almost flat but still upward part of the curve. And, finally, Clutter, where the curve turns negative reflecting their belief that, at some point, additional money produces more problems than benefits. Toward the end of their book they offer the idea that if directed to charity, money beyond luxury can replace clutter with a steep, positive "finish" in the wealth curve. I really like this idea, this framing of the potential of additional earnings. It has made me reconsider my paranoid tendency toward anonymous versus credited donations. Oh, and a point all of those authors make is that the *actual* dollar amount where your personal wealth curve steepens, shallows out, and tips over into clutter OR lifts off up as you donate is extremely personal. It can't be printed out like some IRS schedule. Twist's book may be a little woo-woo ... too spiritual for some. I found it fairly easy to see past the passages that were more new-age-y than my own personal outlook, but if you're sensitive to that sort of thing, it might bug you. If you are interested in exploring this question of how, how much, when, and why to contribute your time and money, I am unaware of a better place to start than The Soul of Money.